This is along with lower demand for fast food and other guilty pleasures, as GLP-1s can apparently reduce associated cravings.
The market has been quick to discard companies that are potentially in the crosshairs until there is further clarity on the impact.
Since the end of July, UBS’ index, which tracks a basket of healthcare industry companies that may hypothetically lose out from GLP-1s, is down around 22 per cent. However, this creates an opportunity where the reaction has been disproportionate to the risk.
In terms of local companies, the Fisher & Paykel Healthcare share price is down 9 per cent (previously as much as 17 per cent) and ResMed’s is down 32 per cent, with both underperforming in the share market since July.
Both companies manufacture products to treat OSA. It is ResMed’s primary business, but only a small part of Fisher & Paykel’s.
It’s not just sleep apnoea devices feeling the heat. Australian stock exchange giant CSL Healthcare has been providing vaccine and biotechnology manufacturing there and around the world, but its share price was down as much as 14 per cent since July, although has recovered most of this now.
A recent study showing GLP-1s’ effectiveness in treating obesity-related kidney disease has investors worried about the future of their Vifor business, which treats this illness. It accounts for around 15 per cent of CSL’s revenue.
While these new drugs certainly have the potential to reduce obesity in the future, there is a wider range of factors at play. Despite the concerns, the longer-term prospects for these leading transtasman healthcare companies remains positive.
The actual impact on the OSA market by the “wonder drugs” is yet to be determined.
ResMed estimated that in a high-adoption case, GLP-1s will reduce its addressable market in 2050 from 1.4 billion to 1.2b patients (from around 1b today).
It currently has 22 million connected devices and expects this could grow to around 109m by 2050, so it is banking on being able to grow volume about five-fold, despite the market penetration of around 10 per cent. In large part, this is because OSA patients go largely undiagnosed, so the runway for growth remains significant.
In theory, fewer people battling with obesity could mean fewer people needing apnoea masks. However, the reality is that global obesity rates continue to climb and could still increase for decades to come, in spite of the GLP-1s.
Setting aside GLP-1s, a study in the New England Medical Journal expects the US obesity rate to increase from around 42 per cent nowadays to 49 per cent by 2030. It’s also important to note while there is a strong link, obesity isn’t the only cause of sleep apnoea.
The drugs are also facing significant barriers to access, like price and availability, which may be around for years or even decades. There is also the risk of nasty side effects.
While results may be impressive in clinical trials, usage compliance tends to be much lower in the real world. One 4000-patient real-world study on Wegovy suggested around two-thirds may drop out of using it and most of the remainder do not adhere to the treatment regime properly.
The common thread between these examples is that they are all fundamentally high-quality companies with strong leadership teams, treating very real health issues for which GLP-1s will not be a panacea.
Yes, GLP-1s are an exciting and groundbreaking innovation, but it’s important to put the breakthrough in context and keep the bigger picture in mind.
New Zealand and Australia’s leading medical device companies will continue to play a significant role in treating patients in need for many years to come.
After “shooting first and asking questions later”, the focus will soon turn to whether these companies are actually seeing any signs of slower growth because of GLP-1s to justify the knee-jerk reaction we have seen.
Matt Peek is a portfolio manager at Fisher Funds.
